Healthy Q1 for UPS, Asia export growth offsets US softness

High demand from e-commerce shippers contributed to fast growth in business-to-consumer (B2C) deliveries this quarter in the domestic US market.

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UPS today announced its first-quarter 2016 international operating profit increased 15 per cent to US$574 million. Total revenue was $14.4 billion, up 3.2 per cent over the same quarter last year.

Revenue growth was slowed by lower fuel surcharges and currency exchange rates, the company said.  On a currency-neutral basis, revenue increased 3.7 per cent.  Lower fuel surcharge rates reduced revenue growth by approximately 150 basis points.

“The major Asian economies are showing signs of stabilising as exports from China improved in March with positive growth in markets such as Korea, Hong Kong and Vietnam,”  said Ross McCullough, president of UPS Asia Pacific Region.

“As businesses in Asia face increasing pressure and competition, logistics has the power to help drive growth and efficiencies and UPS is well placed to serve that need with our world-class network and deep expertise.”

“In Asia, our investment in service expansion and enhancement is paying off and we remain committed to broadening our service portfolio and expanding our footprint throughout the region,” McCullough added.

US domestic package
US domestic operating profit increased 7.6 per cent to $1.1 billion, and operating margin expanded 50 basis points to 12.1 per cent.  Productivity improvements bolstered by technology, combined with lower fuel cost resulted in a 1.9 per cent reduction in cost per unit compared to the same quarter in 2015.

Total revenue increased 3.1 per cent over the first quarter of 2015, to $9.1 billion.  Average daily package volume increased 2.8 per cent with Ground products up 3.3 per cent and Next Day Air up 3.0 per cent.  High demand from e-commerce shippers contributed to fast growth in business-to-consumer (B2C) deliveries this quarter.

Revenue per package declined by 1.3 per cent as base rate improvements were offset by lower fuel surcharges and changes in product and customer mix.  Fuel surcharge rates reduced yield growth by 120 basis points.

International package
International operating profit jumped more than 15 per cent to $574 million during the quarter, with improved performance from all regions.  Disciplined pricing combined with network efficiency gains contributed to the increase in profitability.

Revenue was down 1.9 per cent, however on a currency-neutral basis it was flat to the prior year.  Lower fuel surcharges reduced revenue by approximately 200 basis points.  Daily Export shipments increased slightly, as growth out of Asia and Europe offset declines in US exports. Shipment growth from middle-market customers outpaced enterprise accounts during the quarter.

Total revenue per package increased 1.6 per cent on a currency-neutral basis.  Solid base rate improvements across all regions were reduced by changes in fuel surcharge rates.  Premium products grew faster than non-premium during the quarter.

Supply chain & freight
Supply Chain and Freight revenue increased by more than 10 per cent to $2.4 billion. This was mainly due to the acquisition of Coyote Logistics in the third quarter of last year.  Operating profit was better than anticipated, but slightly less than last year.  Weak market conditions in the Air Freight Forwarding and LTL markets weighed on top line growth.

The Forwarding business expanded operating margins through a focus on revenue quality and operating cost reductions.  The asset-light, truckload brokerage business is performing well, even in a market that remains soft.

“Revenue management actions and improved network efficiencies are driving substantial operating profit growth,” said Richard Peretz, UPS chief financial officer who added that he expected the momentum to continue with 2016 full-year diluted earnings up 5-9 per cent over adjusted 2015 results.

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